On April 21, 2016, the Federal Energy Regulatory Commission (“FERC”) denied a complaint from Monitoring Analytics, LLC, the independent market monitor (“Market Monitor”) for PJM Interconnection, L.L.C. (“PJM”), alleging that PJM’s existing capacity market rules fail to treat demand response resources in a manner comparable to generation capacity resources. Specifically, the Market Monitor asserted that demand response resources should be subject to: (i) a must-offer requirement, as applicable to PJM’s day-ahead energy market; and (ii) an offer cap on all energy offers, as applicable to generation resources.

The Market Monitor filed its complaint under section 206 of the Federal Power Act (“FPA”) on January 27, 2014. In the complaint, the Market Monitor requested that FERC order PJM to treat demand response as an economic resource required to offer into the day-ahead energy market, subject to the offer cap that currently applies to generation resources. In support of its request, the Market Monitor cited to rules adopted by ISO New England Inc. (“ISO-NE”), which require demand response resources that have undertaken commitments in ISO-NE’s Forward Capacity Market to make cost-based energy offers into ISO-NE’s day-ahead energy market and real-time energy market. The Market Monitor also cited to FERC Order No. 745, noting that FERC has previously found that demand response resources should be treated comparably to generation resources.

On February 24, 2014, PJM answered the Market Monitor’s complaint. PJM argued in its answer that FERC has not required identical treatment between demand response and generation capacity resources in recognition of the fact that there are inherent differences. PJM also argued that the Market Monitor failed to meet its burden of proof under FPA section 206 to demonstrate that PJM’s existing caps are unjust and unreasonable.

Several additional PJM stakeholders filed protests and comments. Supporters of the complaint generally asserted that it is inappropriate to exempt demand response from submitting daily energy offers. Opponents of the complaint claimed that, under PJM’s tariff, demand response obligations are appropriately tied to emergency operating conditions, and that, under Order No. 745, these resources need only be treated as comparable to generation, not identical.

FERC denied the complaint, citing to Order No. 890 to support its finding that “comparability does not require identical application to demand response resources and generation resources of PJM’s offer cap and the must-offer requirement, as alleged by the Market Monitor.” FERC also noted that functional and operational distinctions between demand response resources and generation resources justify PJM’s application of different market rules. Finally, FERC held that its determination that ISO-NE’s must-offer requirement is just and reasonable does not alone support a finding that the absence of this requirement in PJM is unjust and unreasonable.

The order is available here.